On the heels of news from Associated Builders and Contractors (ABC) that construction backlogs retreated slightly in the fourth quarter comes word from American Institute of Architects (AIA) Architectural Billings Index (ABI) that design billings declined in January, from 52.2 to 49.9. As followers of the index may recall, any score below 50 denotes decreasing demand for design services. Although January's drop reflects only a modest decline, it also breaks a nine-month stretch in positive growth for design services.
This easing in demand for design services is a bit of a surprise given the overall strength of the market over the past nine months,” says AIA Chief Economist Kermit Baker.. “Likely some of this can be attributed to severe weather conditions in January. We will have a better sense if there is a reason for more serious concern over the next couple of months.”
The news was better for the Midwest. After a precipitous decline in November, January marked a second consecutive month of positive demand for regional design firms. As in December, the Midwest scored 50.8, trailing only the South (54.8). The West scored 49.3, down from 52.7 in December, while the Northeast scored 46.0, up from 45.5 in December.
To some degree, the results comport with construction backlog data aggregated by ABC, which show softening demand in the West following a rather robust 2014.
By sector, results are as follows: institutional (53.0), multi-family residential (51.4), institutional (53.0), commercial / industrial (50.9), mixed practice (46.9).
Industry economists such as ABC Chief Economist Anirban Basu and Ken Simonson, chief economist with Associated General Contractors of America, expect multi-family sector, particularly apartments, to perform well this year, as it did in 2014, the result of strict lending standards for potential homeowners and a lack of desire for ownership among potential first-time buyers.
Basu also anticipates a robust performance from other private-sector segments, which he says will play a central role in industry recovery this year.
ABI reflects the nine- to 12-month lead time between billings and construction.